The Pakistani rupee is expected to remain broadly stable at around Rs. 278/U.S. dollar through 2026 as elevated interest rates, stronger foreign-exchange buffers and improved access to international capital markets reduce pressure for a near-term devaluation, according to an economic outlook of Fitch Solutions.
The forecast marks a shift from an earlier expectation that policymakers would allow the currency to weaken to Rs. 288/USD by the end of 2026, according to an outlook published by BMI, a unit of Fitch Solutions.
The outlook said the risk of a disorderly devaluation has eased as Pakistan’s foreign-exchange reserves continue to improve despite higher energy import costs and sizeable external debt repayments.
Foreign-exchange reserves stood at $17.1 billion as of Aug. 28, equivalent to about 2.6 months of imports, supported by strong remittance inflows as well as continued bilateral and International Monetary Fund support.
Higher rates support rupee
The State Bank of Pakistan raised its policy rate by 100 basis points to 11.5% in April as inflation accelerated following the escalation of the U.S.-Iran conflict. Although higher global energy and food prices are expected to keep inflation above the central bank’s 5-7% target for the remainder of fiscal year 2026-27, the central bank is expected to keep its policy rate unchanged to avoid placing additional pressure on economic growth.
The current policy rate remains significantly above the 7% level seen before Pakistan’s 2022-23 balance-of-payments crisis, helping discourage capital outflows and support currency stability. A stable rupee could also help contain imported inflation and anchor medium-term inflation expectations, the outlook said.
Bond market access improves
Pakistan’s improving access to international capital markets is expected to provide further support to foreign-exchange reserves and reduce refinancing risks.
Fitch Ratings maintained Pakistan’s sovereign rating with a stable outlook, while S&P Global Ratings and Moody’s Ratings upgraded their respective ratings by one notch over the past two months. The upgrades reflected progress on IMF-backed reforms and fiscal consolidation. Pakistan’s fiscal deficit narrowed to 2.6% of GDP in fiscal year 2025-26, its lowest level in 21 years, according to the outlook.
Pakistan raised $3 billion through a dual-tranche Eurobond issuance on Sept. 3, taking advantage of historically tight spreads for high-yield sovereign debt. The transaction was Pakistan’s largest-ever international bond sale and should ease concerns over near-term external debt obligations, including $1.7 billion in dollar-denominated debt due in 2026.
Improved access to international markets could allow Pakistan to secure additional external financing, reduce refinancing risks and give policymakers greater room to maintain currency stability.
Devaluation predicted for 2027
Despite the near-term stability, policymakers are expected to allow a modest depreciation of the rupee to around Rs. 292/USD by the end of 2027 as concerns over export competitiveness increase. The rupee remains overvalued in real effective exchange-rate terms, with the index reaching an eight-year high of 107.9 in July.
The stronger real exchange rate is eroding export competitiveness while making imports more attractive, the outlook said. Pakistan’s merchandise trade deficit widened 34.6% to $39.6 billion in fiscal year 2025-26 from $29.4 billion a year earlier.
Strong remittance inflows have so far helped prevent a sharper deterioration in the external position, but they are unlikely to fully offset a widening trade deficit indefinitely. Policymakers are therefore expected to place greater emphasis on supporting exports and economic growth, with easing inflationary pressures in the second half of 2027 creating room for a gradual currency adjustment.
Risks tilted toward earlier devaluation
The risks to the currency outlook are tilted toward an earlier or sharper devaluation, particularly if the U.S.-Iran conflict escalates further or remains prolonged. Brent crude is trading close to $100 a barrel, a level last seen in July. A sustained increase in oil prices would raise Pakistan’s import bill, weaken its external position and increase pressure on the rupee. A prolonged period of elevated energy prices could therefore force policymakers to allow a faster depreciation than currently forecast.